Commodities bull 'has a good bit more life'

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“The bull market in commodities has a good bit more life,” says O.A. Cleveland, Jr., Extension agricultural professor emeritus at Mississippi State University. “It could last another five years or more. But I don’t see inflation as a problem.” He says “a lack of money supply available to consumers” will hold inflation in line.

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Although “staggering” price increases for many key commodities have occurred since 2007, with several at or near historic highs, this should not be a major contributor to inflation, says O.A. Cleveland, Jr.

“The bull market in commodities has a good bit more life,” he said in a discussion at the Starkville, Miss., Rotary Club. “It could last another five years or more. But I don’t see inflation as a problem.”

Cleveland, who is Extension agriculturalprofessor emeritus at Mississippi State University, says “a lack of money supply available to consumers” will hold inflation in line. “They don’t have the spending power they had prior to 2008. Unemployment remains high, which also serves to limit consumer cash for purchases; those who are out of work are using what cash they have for food and necessities.

“People are more cautious about spending in general— they’re actually saving more and paying down more on debt than in a very long time.”

The outlook points to a continuation of the bull market for agriculture, Cleveland says. “It will take at least three years for price ratios to come back in line.”

There’s a big “but,” however — “With ethanol expected to use 40 percent of the U.S. corncrop, the commodity boom could last another five to 10 years.”

Ethanol production, subsidized by the government at 45 cents per gallon, (estimated to total $31 Billion in 2011)was originally intended to relieve the pressure on U.S. imports of oil, Cleveland says, “but a corollary impact was to raise world food prices,” sparking protests in many countries around the world.

With world population increasing by 75 million each year — the equivalent of 25 states of Mississippi — demand for commodities will remain strong, regardless of whether the economy is good or bad, he says.